Oral History Interview - Steve Nakayama

SEMI Oral History Interview

Steve Nakayama

Interviewed by Craig Addison, SEMI

Early in his career Shigeru (Steve) Nakayama worked for Tokyo Electron Ltd as general manager of the diffusion furnace division, where he played a key role in introducing U.S. semiconductor equipment technology to Japan. He was instrumental in founding the Japan operations of SEMI in February 1985 and served as SEMI Japan president until his retirement in 1994. In 1997, Nakayama helped establish the Society of Semiconductor Industry Seniors (SSIS), a group of retired Japanese semiconductor industry leaders intent on transferring knowledge to young engineers. In 2003, he received the SEMI Bob Graham Award for Excellence in Marketing, recognizing his efforts in securing international co-operation during the period of trade friction between the U.S. and Japan.

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CA: Could we start off with how you first got into the semiconductor industry?

SN: Since 1970 I was involved in semiconductor industry, over 35 years, and in 1971 I was assigned to work at the Mountain View office of Tokyo Electron. I worked about one year [there] and after that I moved down to the L.A. office of TEL America, and worked in L.A. until 1979, for about nine years. I visited the various device manufacturers, such as Intel…RCA, Raytheon, Intersil. So I had very good experience during those days in the United States. Then in 1979 I was ordered to come back to Tokyo. Then I was a general manager of the Instrument Division and later TEL-Thermco, which is the furnace division. I handled the Fairchild test machines as well.

CA: Before we move into the 80's, why did you come to the U.S.?

SN: I was sent by the company.

CA: Did you request it?

SN: No. That kind of system is not popular in Japan. It's always a “yes, sir” system.

CA: What sort of products did TEL have during the 70s? Did they have their own products?

SN: Originally it was in the business of exporting, not importing. Until about 1976 or 1977, 80 percent of Tokyo Electron’s business was exporting. We first represented manufacturers of small hand calculators which were made in Malaysia and shipped to the United States, and also Tokyo Electron had a car radio system back in the 1970s. That was a good business. However, in the mid-70s the Japanese yen increased in value very strongly. It was 360 yen [to the dollar] and ended up at 80 yen or 90 yen about 10 years ago [mid 1990s]. So the export business was facing a very difficult situation in making money. We stopped export from Japan to United States. Then we encouraged imports from outside to Japan. In 1976, ‘78 we diversified, from 80 percent export, 20 percent import to almost 100 percent import.

CA: What was the state of the Japanese chip equipment industry at that time?

SN: At that time it was still very small. The market itself was very small. Of course, NEC, Hitachi, Mitsubishi, Fujitsu, Oki, Sharp, Matsushita had been manufacturing ICs already but the size was not as big as that of the United States.

CA: Where did they get their equipment from?

SN: From Japanese and also U.S. companies.

CA: So Tokyo Electron identified a market opportunity to import U.S. semiconductor manufacturing equipment and sell it in Japan?

SN: Exactly, yes.

CA: And how quickly did the Japanese companies develop their own equipment? Did that happen in the 80s or in the 70s?

SN: It needed another 10, 15 years but the seed was planted. So many new companies were trying to make their own equipment.

CA: During your time in the U.S., what did you notice about the U.S. semiconductor industry? Very rapid growth?

SN: Oh yes. That was the growing time of the device industry in the United States, very much. In the meantime, Japan was following the U.S. semiconductor industry but I think it was at least about five years behind the United States.

CA: When you were in the U.S. did you meet the founders of Fairchild, such as Bob Noyce or Gordon Moore?

SN: Oh yes, Bob Noyce.

CA: Do you have any stories to tell about Bob Noyce?

SN: Well, one day, I forget when it was, Tokyo Electron celebrated its 10-year anniversary in Mountain View. We invited Bob Noyce because we were the sales representatives of Fairchild in Japan. Bob Noyce made a speech. The “two Toms” in Tokyo Electron are Tom Kubo and also Tom Kodaka. Those two gentlemen are the founders of Tokyo Electron. Bob Noyce gave a speech, so I’m sure he wanted to say “Tom and Jerry” as a joke, instead of saying, “Tom and Tom”.

CA: When you went back to Tokyo, what were you doing?

SN: First I was the general manager of the Instrument Division to sell Fluke products. Test instrument sales were very difficult, but anyway I did that. The next in my mission was general manager of the Thermco division, Thermco furnaces. At that time TEL already had been manufacturing Thermco products in Japan as a joint-venture. TEL-Thermco Company made the furnaces and they were sold through TEL.

CA: Were there any Japanese companies that were making furnaces?

SN: One, yes. But TEL had the majority of the market.

CA: And you were manufacturing in Japan?

SN: Yes, we were manufacturing at TEL-Thermco, which was a joint-venture company with Tokyo Electron and Thermco. And later in the early 80s Thermco was sold to someone else so we agreed to separate. We bought out Thermco’s share of the joint-venture, so TEL Thermco Company became TEL Company, a part of Tokyo Electron.

CA: During this period were there any quality issues about U.S. products, or that came later in the 1980s?

SN: There's a difference between the machine quality and the chip quality. Every machine has some problem but the key is how quickly you can fix it. How you can keep your big ear to listen to the customer, how quickly you respond to that. That's the quality part of that. Not only to make good quality materials, but the quality of the human response as well.

CA: When you left Japan in 1970 and you came back in ‘79, how did things change?

SN: Well, every year, I have been back and forth, so I couldn't see too much difference, but the semiconductor industry was steadily growing. That is the 64K DRAM era. In 1975 or ‘76, I believe, the Japanese government sponsored a kind of consortium to develop 64K DRAM, and this group had many members from various companies, such as Hitachi, Toshiba and NEC. Even the suppliers were involved in that. So this consortium was a very successful consortium to develop 64K DRAM and also certain machines like steppers. Nikon learned much from this consortium. At that time, in steppers business, GCA was the king, but gradually, Nikon and Canon developed their own machines and they improved their machines quite a bit, so Nikon and Canon took over GCA’s market.

CA: When you came back, how long did you stay with TEL?

SN: Up to ‘84. About five years.

CA: During those five years were there any highlights, any challenges that you recall?

SN: Well, I have many businesses with various Japanese customers and those Japanese customers have a kind of energy to build up their own capabilities, so it was a very busy time.

CA: So at that stage they were trying to catch up to the U.S.?

SN: Yes. Around 1980 the energy in Japan started to grow quickly and by 1986 or 1987, Japanese total [IC] production exceeded the United States production. In the 80s, every Japanese company had strong power to expand their growth, their business or production capabilities and capacity as well. Those were very, very busy days, and exciting.

CA: Why did you decide to leave TEL and what did you do after that?

SN: Well, Larry Yoshida was my boss and he had been helping SEMI while he was doing the job at TEL. But SEMI decided to expand their operation in Japan and need a permanent person to run the SEMI office and Larry Yoshida asked me whether I was interested. So I said, “Oh, maybe that is interesting to work for both the foreign company and the Japanese company.” So that’s the reason why I decided to take the job at SEMI.

CA: Who actually offered you the job? Was it Bill Reed?

SN: Yes. Bill Reed and Chuck Drexel. Chuck Drexel was the chairman of the [SEMI] board at that time, I believe. They both came to see me and we talked.

CA: So you were very familiar with SEMI?

SN: Yes.

CA: What was the reputation of SEMICON in Japan at that time?

SN: There was only one SEMICON show in Japan so it had value. It was not as large as today…about half the size of today.

CA: What kind of challenges did you face after joining SEMI?

SN: First of all, Bill Reed wanted to establish an office in Japan and secondly, once we established an office in Japan, SEMI was to have full responsibility for the SEMICON show, Technical Symposium and Standards activities as well. So the challenge was to begin preparation for all of these activities all by myself.

CA: Now this was during the period of the U.S.-Japan trade friction or leading up to it, so how did that make your job more difficult?

SN: This was a little bit before the trade friction. In 1985 the trade friction came about over government-to-government negotiations, mainly for semiconductor consumption. The Japanese output of semiconductors was almost close to the United States' output, so the U.S. industry was having some critical feeling about this situation. Also, Japan was, as you know, consuming a lot of electronics components because Japan was a good market for consumer items like TVs, radios, and audios. So Japan was a good customer for U.S. device manufacturers as well, but once Japan established its own supply, the U.S. chip market would lose the market. So the U.S. government was asking Japan to guarantee to import, let's say, 20 percent [of its chips] from the United States. So this kind of argument started in 1985. That was a very tough time for all of us, not only the equipment suppliers but also the device manufacturers. The delegations have to go back and forth every month…with the government-to-government negotiations and a lot of pressure. This was not only for the semiconductor industry. Probably the U.S. government was intent on opening every sector of the Japan market, not only for the semiconductors, but for the textiles or automobiles or ship-building, and financial and banking system as well.

So '85, '86, '87 were very tough years for us. But more precisely, the equipment and materials industries had a more difficult situation because certain materials, such as the wafer, thermal package, lead frames, and resist, had more than 50 percent of market share outside of Japan. Some materials had 70, 80 percent worldwide market share. This is more market share than the device industry itself so we were scared that after the device negotiations were over, the U.S. government may focus on equipment and materials industries. We wanted to avoid this market to be the subject of government-to-government discussions [because] once it went to the government’s hands, it is very difficult [to resolve] because each government has taxpayers behind them and they have to fight only for their interests. So the SEMI board and executives discussed how to deal with that. For example, one of Ken Levy’s ideas was to have a trade partners' conference between U.S. and Japan equipment and material suppliers, including if possible, device manufacturers. So we established a so-called U.S.-Japan Trade Partners' Conference. For three years we used this name but later, we invited the guests from Taiwan, Korea, and Europe, so we changed the name to International Trade Partners' Conference. It originated as a means to solve U.S. and Japan trade friction and to create understanding.

There was a lot of work to do so that we could have peaceful talks. Not arguing, not hitting the table, just talk. The best place to hold the conference was Hawaii because Hawaii is in-between the two countries and it is a relaxing, fun island. On top of that, we decided that we don't need any ties and coats. Let's talk with T-shirts…and also in order to understand each other, we should have as much time as we can to talk individually. So the conference session was only four hours in the morning. In the afternoon we had free discussion, or a long lunch or some sporting activity like a beach game or golfing. So we created opportunities to get to know one another. And one of the good ideas was to try to invite the executives from the device manufacturers so that they will have more chance to talk with one another, especially between the Japanese executives and the American executives. So that's the kind of opportunity SEMI provided the industry.

In the first two or three years we had a difficult time…like the U.S. patent issue. “You stole my patent. You are cheating us.” This type of conversation went back and forth. But after a few years the atmosphere changed totally. For both parties the attitude became, “How I can sell my product in your country. We wish to understand your situation.” So they tried to help each other. This was much better. After the third or fourth year…they know each other so they can shake hands with each other and say, “Hey, how are you? How is your business?” It was a great time for all of us.

At the same time in Japan, we had organized a trade study group, which consisted of all foreign companies who had a sales office in Japan, such as KLA, Watkins Johnson, Kulicke & Soffa, Tencor, Eaton, Teradyne, Novellus, and Mattson. These companies joined this study group and every month we brought in somebody to make a presentation on any difficulties they were facing in their Japan operation, such as hiring good people, management, and networking business channels with new customers. At the same time, this trade study group invited very important persons from the device manufacturers, such as NEC, OKI, Sony, Hitachi and Toshiba to make a speech on subjects such as purchasing: How do they decide on what machines to buy...and who inside the company has the real purchasing power? That was a great help to us. Not only that, by inviting speakers and attendees they had an opportunity to get to know one another, exchange business cards and later were able to talk on their own. So that’s the kind of opportunity we provided.

CA: In 2003, you won the Bob Graham Award for your work in this area and I remember hearing some people say that you actually managed the tense relationship between SEAJ and SEMI. Can you talk about that?

SN: Yes. That's kind of a touchy subject. Before we started SEMI Japan in 1985, of course I visited MITI and we explained that SEMI was going to establish an office, and its planned activities. Soon after, a group of Japanese equipment suppliers got together and said that they were going to have a very similar association like SEMI, called the Semiconductor Equipment Association of Japan (SEAJ) and the primary goal was to share the information with SEMI, like market information…and also in order to keep their financial status healthy, they wished to have a show as well, like the SEMICON show. The negotiation to share the rights to the SEMICON show was difficult. This was a big discussion among the SEMI board members and in the end, SEMI decided on the policy to do it by itself. So I met the representatives of SEAJ, who were great gentlemen. I introduced most of the SEMI board members to talk with them and had many joint meetings, even at Hawaii, which is a good place to talk. So for the first two years I had a very hard time but after that when the chairman of SEAJ and Bill Reed got to know each other very well, things became very peaceful. We didn’t have any more difficulties with the government. At the same time, fortunately, Mr. Armacost was the Ambassador of the U.S. Embassy in Tokyo. He was a great supporter of SEMI so we were very happy with the U.S. Ambassador, the government and SEAJ. We became like a team. It was a very peaceful time.

During those difficult times, I was very happy with many good people who supported me. One of the great supporters at that time was Mr. Shig Takayama, who was the first Japanese board member of SEMI. He helped us a lot. It’s unbelievable how much he helped us, so I feel he is really my father, even today. I also had good staff at SEMI. I really appreciated all of these people.

CA: You left SEMI in ’94. Why did you decide to leave?

SN: I lost my hair quite a bit so I decided this was a good time to retire. Very simple. [laughs]. To be honest with you, 10 years with SEMI serving thousands of SEMI members was a lot of work. I wanted a little bit of relaxation time, that’s the main reason. Even after that, I have been helping SEMI as an advisor. During those SEMI days, I got to know many people all over the world -- in Japan, Korea, Taiwan, mainland China, United States, Europe -- so I have many friends. This was great 10 years for me. I really appreciate that SEMI gave me the opportunity to do this work.

CA: Why don't we talk about post-SEMI; I know you set up the seniors group and you are on the board of Mattson but what sort of activities have you been doing after you left SEMI?

SN: Well, right now I still help about 10 companies but not all active. I have been helping Japanese companies as well as joining Mattson [Technology] on its board. The reason why I retired from SEMI was because I wish to engineer my own time so I selected a few companies who I help when they need it. I do not go to the office every day, only when they really need me. So I am very much happy about that. I am helping Mattson U.S. and Mattson Japan as well; and doing some auditing or acting as advisor for smaller companies.

CA: Looking into the future, do you think there's smooth sailing for Japan and U.S.? There are no issues?

SN: I don’t think we have any serious issues between the U.S. and Japan. We should focus on how mainland China does in the future.